FrasersCT – DBS

Small is beautiful

1Q07 DPU slightly above expectations. FCT’s 1Q07 DPU of 1.54 cents is slightly above our estimates. Gross rental revenue of S$19.2m grew 8.1% y-o-y, mainly attributed to positive reversions from renewals and new leases, as well as higher carpark income and additional income from leasing of Atrium space, etc. Net property income grew 4.2%, mitigated by higher expenses. Occupancy for FCT’s portfolio continues to be healthy at 98.8%, slightly affected by Anchorpoint currently repositioning into a village-mall concept. Distributable income was S$9.47m, 4.3% above FCT’s own forecast.

Further expansion of pipeline. To recap, moving forward we expect FCT to focus on asset enhancement plans in the near term, followed by planned acquisitions. Asset enhancement is targeted to commence from Jan 2007 and span 20 months for each of the three properties in the initial portfolio. Acquisition pipeline in the near term remains status quo with Centrepoint property and Yishun extension to complete in FY08 and FY2010 respectively. In the longer term, Frasers Centrepoint (“FCL”) has recently acquired two properties in Bedok Town Centre for S$40.8m as well as an option agreement to acquire Yew Tee Point from NTUC Choice Homes, expected to complete in 2009. Therefore, small is beautiful for FCT which is slowly but steadily expanding its acquisition pipeline which we estimate to double to S$1.8bn by 2010.

Maintain hold with raised TP at S$1.53. We have rolled forward our DCF estimates to FY2011, maintaining a five-year investment horizon. Besides incorporating acquisition assumptions for Centrepoint and Yishun property to be completed by 2008 and 2010 respectively, we have also included potential acquisition of the Bedok property and Yew Tee Point in our estimates. Therefore we are raising our target price to S$1.53 based on DCF valuation but maintain our Hold recommendation for FCT.